From the Downsizing Bloghttps://www.downsizinggovernment.org/blog/0
enCorporate Welfare and Corruptionhttps://www.downsizinggovernment.org/corporate-welfare-and-corruption
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Chris Edwards </li>
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<div class="section field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item odd" property="content:encoded"><p style="text-align: left;" align="center">President-elect Donald Trump says that he will cut wasteful spending and “drain the swamp” in Washington. The first thing he should target is business subsidies in the federal budget. Such “corporate welfare” spending attracts corruption like garbage dumps attract rats.</p><p style="text-align: left;"><a href="https://object.cato.org/sites/cato.org/files/pubs/pdf/PA703.pdf">A Cato study</a> estimated that there is $100 billion of corporate welfare in the budget. That spending harms the economy, but the incoming administration should be aware that such spending also spawns damaging scandals. That pattern goes all the way back to the 19th century. Federal subsidies for the first transcontinental railroad led to the Credit Mobilier scandal of the 1870s, which involved dozens of members of Congress.</p><p>More recently, corporate welfare has spawned these scandals: </p><ul><li><strong><a href="https://www.downsizinggovernment.org/hud/scandals" target="_blank">HUD Subsidies under Reagan</a>.</strong> President Ronald Reagan’s Department of Housing and Urban Development overflowed with corruption in the 1980s under Secretary Sam Pierce. Pierce routinely dished out grants, loans, and other subsidies to friends, business associates, and Republican Party contributors.</li><li><strong><a href="https://www.downsizinggovernment.org/commerce/ita" target="_blank">Commerce Subsidies under Clinton</a>.</strong> President Bill Clinton’s Commerce Secretary, Ron Brown, used business subsidies as a fund-raising tool for the Democratic Party in the 1990s. Corporate executives who played the game were given access to export promotion trips and federal export loans. In his investigations, U.S. District Judge Royce Lamberth determined that Commerce officials concealed and destroyed documents relating to the trade mission scandal, and he compared officials to “con artists.”</li><li><strong><a href="https://www.downsizinggovernment.org/export-import-bank" target="_blank">Enron Subsidies under Clinton and Bush</a><em>.</em></strong> Enron Corporation lobbied federal officials to expand export subsidy programs, and it received billions of dollars in aid for its risky foreign schemes. During the Clinton and Bush administrations, high-level officials went to great lengths to aid Enron on an Indian power plant deal. Federal aid induced Enron to make misguided foreign investments, and the resulting losses helped cause the company’s implosion.</li><li><strong><a href="https://www.cato.org/publications/congressional-testimony/corporate-welfare-spending-vs-entrepreneurial-economy">Green Subsidies under Obama</a><em>.</em></strong> The <em>Washington Post</em> found that “Obama’s green-technology program was infused with politics at every level.” The $535 million loan guarantee for the failed Solyndra is a prime example. The Department of Energy approved the loan after pressure from the White House. A main Solyndra investor was a billionaire Obama fundraiser. The <em>New York Times</em> found that Solyndra “spent nearly $1.8 million on Washington lobbyists, employing six firms with ties to members of Congress and officials of the Obama White House.”</li></ul><p>American businesses have a right to lobby the federal government. But Congress throws fuel onto the corruption fire by funding business subsidy programs. The Trump administration should work to eliminate corporate welfare, including green subsidies, export subsidies, and housing subsidies. Corporate welfare undermines honest governance, and one message of the election is that Americans are sick and tired of the resulting scandals. </p></div></div></div>Thu, 08 Dec 2016 20:37:58 +0000Chris Edwards1672 at https://www.downsizinggovernment.orgPentagon Bureaucratic Waste: $125 Billionhttps://www.downsizinggovernment.org/pentagon-bureaucratic-waste-125-billion
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Chris Edwards </li>
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<div class="section field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item odd" property="content:encoded"><p>The <em>Washington Post</em> has a <a href="https://www.washingtonpost.com/investigations/pentagon-buries-evidence-of-125-billion-in-bureaucratic-waste/2016/12/05/e0668c76-9af6-11e6-a0ed-ab0774c1eaa5_story.html?utm_term=.c22adec566f9" target="_blank">blockbuster story</a> today documenting vast overhead costs in the Department of Defense (DoD). Experts often lambast the DoD’s excessive bureaucracy, and <a href="https://www.downsizinggovernment.org/pentagon-bureaucracy" target="_blank">I have charted</a> the growth in the number of civilian DoD workers.</p><p>But the <em>Post</em> reveals remarkable new measures of the department’s bloat, based on a leaked study it obtained:</p><blockquote><p>The Pentagon has buried an internal study that exposed $125 billion in administrative waste in its business operations amid fears Congress would use the findings as an excuse to slash the defense budget, according to interviews and confidential memos obtained by The Washington Post.</p><p>Pentagon leaders had requested the study to help make their enormous back-office bureaucracy more efficient and reinvest any savings in combat power. But after the project documented far more wasteful spending than expected, senior defense officials moved swiftly to kill it by discrediting and suppressing the results.</p><p>The study was produced last year by the Defense Business Board, a federal advisory panel of corporate executives, and consultants from McKinsey and Company. Based on reams of personnel and cost data, their report revealed for the first time that the Pentagon was spending almost a quarter of its $580 billion budget on overhead and core business operations such as accounting, human resources, logistics and property management.</p><p>The data showed that the Defense Department was paying a staggering number of people — 1,014,000 contractors, civilians and uniformed personnel — to fill back-office jobs far from the front lines. That workforce supports 1.3 million troops on active duty, the fewest since 1940.</p></blockquote><p>The DoD’s effort to bury the study is appalling, but Pentagon waste is a complex problem. You can’t just chop $125 billion worth of “back office” jobs overnight. However, it is also true that the 1,014,000 such jobs—in logistics, procurement, and other activities—are the exact types of functions that have become vastly more efficient in the private sector.</p><p>One of the core problems in the DoD and other federal departments is the <a href="https://www.downsizinggovernment.org/bureaucratic-failure" target="_blank">excessive layering</a> that has accumulated over time. American businesses have become much leaner in recent decades, with flatter management structures. But the federal workforce has become top-heavy with excessive layers of management, and the DoD is no exception.</p><p>Former Defense Secretary <a href="https://www.downsizinggovernment.org/pentagon-bureaucracy" target="_blank">Robert Gates complained</a> that the Pentagon is a “gargantuan, labyrinthine bureaucracy” with 30 layers of staff under the secretary. And John Lehman<a href="https://www.downsizinggovernment.org/pentagon-bureaucracy" target="_blank">explained</a>: “With so many layers and offices needed to concur on every decision, it now takes an average of 22½ years from the start of a weapons program to first deployment, instead of the four years it took to deploy the Minuteman ICBM and Polaris submarine missile system in the Cold War era.”</p><p>The <em>Post</em> says that the DoD’s “cost-cutting study could find a receptive audience with President-elect Donald Trump.” The real estate developer may be particularly struck by the size of one overhead activity: 192,000 workers just to handle the department’s “real property management.”</p><p>For more on the root causes of federal bureaucratic inefficiency, see <a href="https://www.downsizinggovernment.org/bureaucratic-failure" target="_blank">this essay</a>. </p></div></div></div>Tue, 06 Dec 2016 19:40:54 +0000Chris Edwards1670 at https://www.downsizinggovernment.orgHeritage Foundation Infrastructure Proposalshttps://www.downsizinggovernment.org/heritage-foundation-infrastructure-proposals
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Chris Edwards </li>
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<div class="section field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item odd" property="content:encoded"><p>In a <a href="http://www.heritage.org/research/reports/2016/11/building-on-victory-an-infrastructure-agenda-for-the-new-administration" target="_blank">new report for the Heritage Foundation</a>, Michael Sargent summarizes what we need on infrastructure from the incoming Trump administration. I agree with all of Michael’s points, which I paraphrase here:</p><ul><li>Ignore rhetoric about crumbling highways and falling-down bridges. America’s infrastructure needs improvements, but the scare stories are off-base.</li><li>Reduce government red tape to speed investment.</li><li>Repeal harmful labor rules, which raise the costs of infrastructure construction.</li><li>Embrace privatization.</li><li>Approve energy projects blocked by the Obama administration.</li><li>Repeal the net neutrality regulations on the Internet.</li><li>Limit regulations on emerging technologies.</li><li>Cut the federal highway gas tax, end spending on urban transit, and reduce the federal role in highways.</li><li>Privatize air traffic control, eliminate subsidies for airports, and remove barriers for the states to restructure airports as self-funded businesses.</li><li>Do not pass a federal infrastructure spending stimulus.</li><li>Do not use repatriated corporate earnings for a government stimulus. If such revenues arise from corporate tax reform, use them to reduce the corporate tax rate.</li><li>Do not create new tax loopholes or subsidies for infrastructure.</li><li>Do not create a federal infrastructure bank. That would lead to more bureaucracy, subsidies, and central control.</li></ul><p>I would add to Michael’s points that I share concerns expressed by Trump and others that America should have world-class infrastructure. But the way to get it is not through subsidies, regulations, and centralization. Instead, the incoming administration should focus on market-based reforms to privatize facilities, reduce subsidies and regulations, and increase competition.</p><p>For more information on infrastructure reforms, see <a href="https://www.downsizinggovernment.org/infrastructure-investment-look-data" target="_blank">here</a>, <a href="https://www.downsizinggovernment.org/trumps-10-trillion-infrastructure-plan" target="_blank">here</a>, <a href="https://www.downsizinggovernment.org/airport-plan-trump-administration" target="_blank">here</a>, and <a href="https://www.downsizinggovernment.org/infrastructure-investment" target="_blank">here</a>.</p></div></div></div>Tue, 06 Dec 2016 00:41:36 +0000Chris Edwards1669 at https://www.downsizinggovernment.orgTrump’s $10 Trillion Infrastructure Planhttps://www.downsizinggovernment.org/trumps-10-trillion-infrastructure-plan
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Chris Edwards </li>
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<div class="section field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item odd" property="content:encoded"><p>President-elect Donald Trump has promised large increases in infrastructure investment. He has not proposed a detailed plan yet, but $1 trillion in new investment is being discussed as a target.</p><p>Actually, Trump has already made a specific proposal that would increase investment by far more than $1 trillion: his tax cut plan. His proposed corporate tax rate cut from 35 percent to 15 percent would increase the net returns to a vast range of infrastructure, including pipelines, broadband, refineries, power stations, factories, cell towers, and other hard assets. With higher net returns, there would be more capital investment across many industries.</p><p>How much more? The <a href="http://taxfoundation.org/article/details-and-analysis-donald-trump-tax-reform-plan-september-2016" target="_blank">Tax Foundation estimated</a> that the overall Trump tax cut would expand the U.S. capital stock by 20 percent above what it would otherwise be within 10 years. TF economists tell me that private capital stock is about 189 percent of gross domestic product under the baseline, which would be about $35 trillion this year and more than $50 trillion in 2026. If the Trump tax cut was enacted and the capital stock grew as TF projects, the capital stock would be $10 trillion or more higher than otherwise by 2026.</p><p><a href="http://www.taxpolicycenter.org/publications/analysis-donald-trumps-tax-plan/full" target="_blank">Other economic models</a> have produced different estimates of the Trump plan’s effects. However, if the tax cut produced anywhere near the benefits projected by TF, then it would amount to a huge multi-trillion-dollar “infrastructure plan.”</p><p>Some models show that the Trump plan would not have such large positive effects. They typically hinge on the assumption that “higher budget deficits will crowd out private investment and slow the economy,” as the <a href="http://www.wsj.com/articles/donald-trumps-tax-plan-would-boost-economy-in-short-run-but-not-long-term-analysis-finds-1476726625" target="_blank"><em>Wall Street Journal</em> noted</a>. There is disagreement about the size of the crowd-out effect, but the way to avoid it is to match the Trump tax cuts with spending cuts. Both tax cuts and government spending cuts are good for the economy, so such a plan would spur the most growth.</p><p>I have focused on private infrastructure here, which is a <a href="https://www.downsizinggovernment.org/infrastructure-investment-look-data" target="_blank">much larger part of the economy than is government infrastructure</a>. Nonetheless, we need cost-efficient and high-quality government infrastructure as well, and I <a href="https://www.downsizinggovernment.org/infrastructure-investment" target="_blank">discuss here</a> how to get it.</p><p>For more information on Trump and infrastructure, see <a href="https://www.downsizinggovernment.org/infrastructure-investment-look-data" target="_blank">here</a>, <a href="https://www.downsizinggovernment.org/trump-bannon-jackson-and-infrastructure" target="_blank">here</a>, <a href="https://www.downsizinggovernment.org/airport-plan-trump-administration" target="_blank">here</a>, and <a href="https://www.downsizinggovernment.org/infrastructure-investment" target="_blank">here</a>.</p></div></div></div>Fri, 02 Dec 2016 20:57:11 +0000Chris Edwards1668 at https://www.downsizinggovernment.orgTaxpayers Right-to-Know Acthttps://www.downsizinggovernment.org/taxpayers-right-know-act
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Chris Edwards </li>
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<div class="section field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item odd" property="content:encoded"><div id="block-system-main"><div><div><div><p>Cato’s forum on Capitol Hill yesterday featured Senator James Lankford of Oklahoma. The senator mainly talked about his <a href="https://www.downsizinggovernment.org/fumbling-federal-finances" target="_blank">Federal Fumbles</a> report, but he also mentioned his proposed “<a href="https://www.congress.gov/bill/114th-congress/senate-bill/282?q=%7B%22search%22%3A%5B%22lankford%22%2C%22lankford+taxpayers%22%2C%22lankford+taxpayers%22%5D%7D" target="_blank">Taxpayers Right-to-Know Act</a>.”</p><p>The legislation complements the priorities of President-elect Trump <a href="https://www.downsizinggovernment.org/trump-spending-cut-ideas" target="_blank">who complained</a> about “waste, fraud and abuse all over the place,” and promised “we will cut so much, your head will spin.” To know where to cut, Trump and his team will need to learn about hundreds of programs and determine which ones are the biggest failures.</p><p>The Trump team can study <a href="https://www.downsizinggovernment.org/" target="_blank">DownsizingGovernment.org</a> for spending cut ideas. But it would be also useful if the Office of Management and Budget (OMB) provided better information about each federal program.</p><p>That’s the thrust of Lankford’s Right-to-Know Act. <a href="https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/costestimate/hr598.pdf">It would</a> “require OMB to list all [federal] programs, their funding levels, the number of beneficiaries of the programs, and link each program to all related evaluations, assessments, performance reviews, or government reports.” On its website, the OMB would also list the statutes authorizing each program and the number of federal employees, contractors, and grantees who administer them.</p><p>Transparency reforms should be extended to the websites of all federal agencies. I’d like to see agencies highlight on their homepages auditor reports on the performance of each program. I’d like to see the “About” pages on agency websites discuss both the pros and cons of agency activities, and not just present one-sided visions. I’d like to see federal agencies provide detailed cost-benefit analyses of each one of their spending programs.</p><p>Federal agencies work for us. We pay the bills. Agencies should inform us about their failures as well as their successes. Lankford’s legislation would be a step forward, but more needs to be done. </p><p>In the photo from the left: Justin Bogie of the Heritage Foundation, me, Senator Lankford, and Tom Schatz of Citizens Against Government Waste.</p><p><img src="https://www.downsizinggovernment.org/sites/downsizinggovernment.org/files/download-remote-images/object.cato.org/sites/cato.org/files/wp-content/uploads/hill_forum_dec_2016_b.jpg" width="640" height="396" /></p></div></div></div></div><div id="block-block-30"><p> </p></div></div></div></div>Thu, 01 Dec 2016 14:51:55 +0000Chris Edwards1667 at https://www.downsizinggovernment.orgFumbling Federal Financeshttps://www.downsizinggovernment.org/fumbling-federal-finances
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Chris Edwards </li>
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<div class="section field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item odd" property="content:encoded"><p>The federal government has suffered from waste, fraud, and abuse in its spending programs for decades—actually, centuries. A federal effort in the 1790s to run Indian trading posts, for example, <a href="https://www.amazon.com/Uncle-Sam-Cant-Count-Investments/dp/0062292692" target="_blank">was plagued</a> by inefficiency. For almost as long, studies have been documenting the waste. An 1836 Ways and Means Committee report, for example, criticized river and harbor projects for being chronically overbudget.</p><p>The wasteful spending continues today, and the latest effort to document it is Senator James Lankford’s new study, “<a href="https://www.lankford.senate.gov/fumbles" target="_blank">Federal Fumbles: 100 Ways the Government Dropped the Ball</a>.” The study describes projects such as “$495,000 to fund a temporary exhibit for sights, sounds, tastes and yes, even smells of the Medieval period” and $2 million for a “multi-year study about kids’ eating emotions, and how they don’t like to eat food that’s been sneezed on.”</p><p>Spending on such dubious projects represents only a small share of the $4 trillion federal budget. However, Lankford’s examples illustrate the broader overspending disease that afflicts Congress and the executive branch, which I discuss <a href="https://www.downsizinggovernment.org/congressional-failure" target="_blank">here</a> and <a href="https://www.downsizinggovernment.org/bureaucratic-failure" target="_blank">here</a>. Lankford’s projects are not just random failures: they stem from structural features of the government that induce politicians and agency officials to spend on low-value activities.</p><p>Senator Lankford will discuss his report <a href="https://www.cato.org/events/cutting-wasteful-spending-trump-administration">at a Cato forum on Capital Hill, Wednesday at noon</a>. Tom Schatz, Justin Bogie, and I will comment on the report and examine prospects for cutting spending during the Trump administration. All are invited.</p><p>To explore the structural reasons for ongoing waste in federal spending, see <a href="https://object.cato.org/sites/cato.org/files/pubs/pdf/pa777.pdf">“Why the Federal Government Fails</a>” and <a href="https://www.downsizinggovernment.org/federal-policy-basics" target="_blank">essays here</a>.</p></div></div></div>Tue, 29 Nov 2016 21:35:58 +0000Chris Edwards1666 at https://www.downsizinggovernment.orgPublic Infrastructure: Costs and Benefitshttps://www.downsizinggovernment.org/public-infrastructure-costs-and-benefits
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Steve H. Hanke </li>
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<div class="section field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item odd" property="content:encoded"><p>Economic policy is subject to fads and fashions. The most recent economic-policy fad is public infrastructure. Its advocates include progressives on the “left” — like President Obama, Hillary Clinton, and Bernie Sanders — and populists on the “right” — like President-elect Trump. They tell us to take the chains off fiscal austerity and spend — spend a lot — on public works. They allege that this elixir will cure many, if not all, of our economic ills. Let’s take a look at their arguments and evidence.</p><p>Economic growth remains muted throughout the world. The U.S. provides an important example. It has been over eight years since Lehman Brothers collapsed and the Great Recession commenced. But, the U.S. has failed to bounce back. The economy is still struggling to escape from a growth recession — a recession in which the economy is growing, but growing below its trend rate of growth. The U.S. aggregate demand, which is best represented by final sales to domestic purchasers (FSDP), is only growing in nominal terms at a 2.75 percent rate (see the accompanying chart). This rate is well below the trend rate of 4.73 percent.</p><p><img src="https://www.downsizinggovernment.org/sites/downsizinggovernment.org/files/download-remote-images/object.cato.org/sites/cato.org/files/hanke-globr-nov1.jpg" alt="image" /></p><p>Many argue that fiscal “austerity” is the culprit that has kept growth tamped down. They advocate fiscal stimulus (read: spending on public works).</p><p>Another line of argument used to support massive increases in spending on public works goes beyond the standard Keynesian counter-cyclical argument. It is the secular-stagnation argument. Its leading advocate is Harvard Economist, Larry Summers, formerly U.S. Treasury Secretary and President of Harvard. He argues that private enterprise is failing to invest, and that, with weak private investment, the government must step up to the plate and spend on public works.</p><p>For evidence to support Summers’ secular-stagnation argument, he points to anemic private domestic capital expenditures in the U.S. As the accompanying chart shows, net private domestic business investment (gross investment — capital consumption) is relatively weak and has been on a downward course for decades.</p><p><img src="https://www.downsizinggovernment.org/sites/downsizinggovernment.org/files/download-remote-images/object.cato.org/sites/cato.org/files/hanke-globe-nov2.jpg" alt="image" /></p><p>Investment is what fuels productivity. So, with little fuel, we should expect weak productivity numbers in the U.S. Sure enough, the rate of growth in productivity is weak and has been trending downward. The U.S. is in the grips of the longest slide in productivity growth since the late 1970s. The secular stagnationists assert that the “deficiency” in net private investment and the resulting productivity slump can be made up by public works spending.</p><p>Both the counter-cyclical and the secular-stagnation arguments have been trotted out many times in the past. So, it’s old wine in new bottles. But, it seems to be selling as a means to escape fiscal austerity. If proposed public works projects proceed as projected, the government financing magnitudes would be stunning. The McKinsey Global Institute estimates that annual spending of $3.7 trillion per year from 2013 through 2030 would be “required” worldwide.</p><p>McKinsey’s “requirements” estimate was computed by using the 70 percent rule of thumb. As shown in the accompanying chart, the average value of the stock of infrastructure for representative countries is 70 percent of GDP. Based on this value, McKinsey then calculated the amount of spending required to keep the global infrastructure stock to GDP ratio fixed at 70 percent over the 2013-2030 period. That exercise yielded a whopping total of $67 trillion in public works spending, which is in the ballpark of most other estimates.</p><p><img src="https://www.downsizinggovernment.org/sites/downsizinggovernment.org/files/download-remote-images/object.cato.org/sites/cato.org/files/hanke-globe-nov3.jpg" alt="image" /></p><p>President-elect Trump has jumped on this infrastructure bandwagon. He is proposing a $1 trillion public works program. Following the script of the public works advocates (read: big spenders), Trump has lifted a page from President Obama’s Council of Economic Advisers (CEA). The President’s CEA’s <em>2016 Annual Report</em> contains a long chapter titled “The Economic Benefits of Investing in U.S. Infrastructure.” That title alone tells us a great deal. Infrastructure spending advocates focus on the alleged benefits, which are often wildly inflated, while ignoring, downplaying, or distorting the cost estimates.</p><p>This was clearly on display in an op-ed, “These are the Policies to Restore Growth to America,” which appeared in the <em>Financial Times</em> (12-13 November 2016). It was penned by Anthony Scaramucci, a prominent adviser of President-elect Trump. In it, Scaramucci asserted that infrastructure spending “has an estimated economic multiplier effect of 1.6 times, meaning Mr Trump’s plan would have a net reductive effect on long-term deficits.” This multiplier analysis is exactly the same one used by President Obama’s CEA to justify public works spending. The idea that a dollar of government spending creates more than a dollar’s worth of output is nothing new. Indeed, the multiplier originated in an article that appeared in a 1931 issue of the <em>Economic Journal</em>. The article was written by R. F. Kahn, who was one of John Maynard Keynes’ favorite students and closest collaborators. Since Kahn’s 1931 article, the multiplier has become an inherent part of Keynesian theory. The numerical values of the multiplier are not only sensitive to the assumptions employed, but also subject to misuse in the artificial inflation of benefits.</p><p>Once public works are installed, the hot air comes out of their alleged benefits. These projects are poorly maintained, and users are often not charged for what they use, or they are charged prices set well below the relevant costs incurred. Water is a classic case. For example, the accompanying chart shows that, on average, 34 percent of the water delivered to water systems is either stolen or leaks out of the distribution systems. In Nigeria, 70 percent is leaked or stolen. So, it’s hard to take seriously the claims that billions of dollars are required to develop more water-resource capacity when much of the water produced in existing systems leaks away. Adjusted for leaks and thefts, the alleged benefits for many new projects, which have been inflated by multipliers, wither away to almost nothing.</p><p><a href="https://object.cato.org/sites/cato.org/files/hanke-gloe-nov4-bg.jpg"><img src="https://www.downsizinggovernment.org/sites/downsizinggovernment.org/files/download-remote-images/object.cato.org/sites/cato.org/files/hanke-gloe-nov4-sm.jpg" alt="image" /></a></p><p>When we turn to the cost side of the ledger, something infrastructure advocates prefer to keep from the public’s view, we find that infrastructure projects are always subject to cost overruns. While the projects might look good on paper, reality is a different story. Detailed studies show that the average ratios of actual costs to estimated costs for public works projects in the U.S. typically range from 1.25 to over 2.0.</p><p>In addition to cost overruns, the financing of infrastructure requires the imposition of taxes, and taxes impose costs beyond the amount of revenue raised. The excess burdens of taxation include “deadweight” distortions and enforcement and compliance costs. In short, it costs more than a dollar to finance a dollar in government spending. The best estimates indicate that, on average, it costs between $1.50 to $1.60 to raise a dollar in tax revenue.</p><p>Taking proper account of cost overruns and the costs of collecting taxes, one wonders if there are any public works projects that could justify federal financing, let alone financing to the tune of <a id="_GoBack" name="_GoBack"></a>$1 trillion. Welcome to the wonderful world of infrastructure waste, fraud, and abuse.</p><p> </p><p><em>This article appeared in the December 2016 issue of <a href="http://www.globalasia.org/" target="_blank">Globe Asia</a>. <a href="https://www.cato.org/people/steve-hanke">Steve H. Hanke</a> is a professor of Applied Economics at The Johns Hopkins University in Baltimore and a Senior Fellow at the Cato Institute.</em></p></div></div></div>Tue, 29 Nov 2016 16:28:42 +0000Chris Edwards1665 at https://www.downsizinggovernment.orgTrump, Bannon, Jackson, and Infrastructurehttps://www.downsizinggovernment.org/trump-bannon-jackson-and-infrastructure
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Chris Edwards </li>
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<div class="section field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item odd" property="content:encoded"><p>On his radio show last night, Mark Levin asked his audience whether they thought President-elect Donald Trump would turn out to be a big-government Richard Nixon or a small-government Ronald Reagan. On the infrastructure issue, I fear that we may be headed in a big government direction.</p><p>Trump, of course, is a “populist,” not a small-government conservative. His advisor, Stephen Bannon, <a href="https://www.washingtonpost.com/news/powerpost/wp/2016/11/21/how-to-pay-for-donald-trumps-trillion-dollar-agenda-congressional-republicans-arent-saying/" target="_blank">indicated the other day</a> what that means:</p><blockquote><p>Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” Stephen K. Bannon told the Hollywood Reporter. “The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan.</p></blockquote><p>Bannon should know that on fiscal policy, <a href="https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2015/5/cj-v35n2-17.pdf">Jackson’s populism was anti-debt and small government</a>. Echoing Thomas Jefferson’s views, Jackson thought that federal debt undermined liberty, and he pushed to eradicate it. Jackson’s views were in tune with the public, which strongly supported frugality in the federal government.</p><p>Jackson and his allies were dubious of federal investments in infrastructure (“internal improvements”). His vice president, Martin Van Buren, thought that “Congress had no power to construct roads and canals within the states.” He said that spending on such projects “was sure in the end to impoverish the National Treasury by improvident grants to private companies and State works, and to corrupt Federal legislation by the opportunities it would present for favoritism.”</p><p>On assuming office, Jackson made a list of his priorities, including “the Public debt paid off, the Tariff modified and no power usurped over internal improvements.” In his first inaugural address, he promised “extinguishment of the national debt, the unnecessary duration of which is incompatible with real independence.” Jackson famously vetoed funding of Kentucky’s Maysville Road in 1830, citing constitutional objections and his goal of debt elimination.</p><p>Jackson was also skeptical of federal investments for practical reasons. In his 1830 message to Congress, he said, “Positive experience, and a more thorough consideration of the subject, have convinced me of the impropriety as well as inexpediency of such investments.” One practical concern was what we now call “crony capitalism.” Jackson noted that when the government gave some initial subsidies to companies, they tended to get hooked on the hand-outs and kept coming back for more.</p><p><a href="https://www.amazon.com/Nation-Wholly-Free-Elimination-National/dp/1594162093" target="_blank">In his book about the Jackson era</a>, Carl Lane concluded that federal debt elimination, “Americans in the Jacksonian era believed, would improve the material quality of life in the United States. It would reduce taxes, increase disposable income, reduce the privileges of the creditor class, and, in general, generate greater equality as well as liberty.”</p><p>Back then, the belief was that a frugal federal government that balanced its books and did not interfere in state and local matters would secure liberty and benefit average citizens. That is the type of Jacksonian populism that Bannon and Trump should pursue.</p></div></div></div>Wed, 23 Nov 2016 21:19:14 +0000Chris Edwards1664 at https://www.downsizinggovernment.orgAirport Plan for Trump https://www.downsizinggovernment.org/airport-plan-trump-administration
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Chris Edwards </li>
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<div class="section field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item odd" property="content:encoded"><p>During the election campaign, <a href="http://www.npr.org/2016/09/26/495115346/fact-check-first-presidential-debate" target="_blank">Donald Trump complained</a> that “our airports are like from a Third World country.” Indeed, America’s airports could be a lot better. The problem is that they are virtually all owned by governments and run as bureaucracies.</p><p>By contrast, many airports abroad are private and run in a more entrepreneurial fashion. Almost half of European Union airports have been privatized, including the main airports in Antwerp, Budapest, Edinburgh, Glasgow, Lisbon, London, Birmingham, Brussels, Copenhagen, Naples, Rome, Venice, Vienna, and Zurich.</p><p>Robert Poole and I explore airport reforms in a new Cato study, “<a href="https://object.cato.org/sites/cato.org/files/pubs/pdf/tbb-76_1.pdf">Privatizing U.S. Airports</a>.” We examine the early history of U.S. airports, discuss global reform trends, explain the advantages of privatization, and describe the needed policy changes.</p><p>In the early years of commercial aviation, the major airports in numerous U.S. cities were privately owned. Unfortunately, government policies squeezed out the private airports over time. We can and should correct that mistake, and bring back the entrepreneurs to the airport industry.</p><p>We don’t know yet how transportation policies will shape up under the new president, but the incoming administration should know that airports and <a href="https://object.cato.org/sites/cato.org/files/pubs/pdf/tbb-74.pdf">air traffic control</a> are ripe for major reforms.</p><p>Airports are a crucial part of America’s infrastructure. Privatization would increase efficiency and innovation, and thus generate benefits to travelers and the broader economy.</p></div></div></div>Tue, 22 Nov 2016 17:47:44 +0000Chris Edwards1662 at https://www.downsizinggovernment.orgAmtrak’s World-Class Losseshttps://www.downsizinggovernment.org/amtraks-world-class-losses
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Randal O'Toole </li>
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<div class="section field field-name-body field-type-text-with-summary field-label-hidden"><div class="field-items"><div class="field-item odd" property="content:encoded"><div><div><p>Amtrak issued its F.Y. 2016 unaudited financial results last week with a <a href="http://media.amtrak.com/2016/11/amtrak-delivers-strong-fy-2016-financial-results/" target="_blank">glowing press release</a> claiming a “new ridership record and lowest operating loss ever.” Noting that “ticket sales and other revenues” covered 94 percent of Amtrak’s operating costs, Amtrak media relations called this “a world-class performance for a passenger carrying railroad.” The reality is quite a bit more dismal.</p><p>Many new high-tech firms attract investors despite losing money, but a 45-year-old company operating an 80-year-old technology shouldn’t really brag about having its “lowest loss ever.” The “world-class performance” claim is based on the assumption that passenger trains all over the world lose money, which is far from true: most passenger trains in Britain and Japan make money, partly because they are at least semi-privatized.</p><p>Moreover, a close look at the <a href="https://www.amtrak.com/ccurl/515/889/Amtrak-Monthly-Performance-Report-September-2016-Preliminary-Unaudited.pdf">unaudited report</a> reveals that Amtrak left a lot of things out of its press release: passenger miles carried by Amtrak declined; ticket revenues declined; and the average length of trip taken by an Amtrak passenger declined. The main reasons for Amtrak’s positive results were an increase in state subsidies (which Amtrak counts as passenger revenue) and a decrease in fuel and other costs.</p><p>Ridership grew by 1.3 percent, but passenger miles fell because the average length of trips fell by 3.1 percent. One of the biggest drops in trip lengths was on the New York-Savannah <em>Palmetto</em>. Starting at the beginning of F.Y. 2016, Amtrak <a href="http://www.trainorders.com/discussion/read.php?4,3866515" target="_blank">added stops</a> at Metropark, New Brunswick, Princeton Junction, and Baltimore-Washington Airport, effectively turning the supposedly long-distance train into a Northeast Corridor train. In 2015, the train’s average trip length was 396 miles, but in 2016 that dropped to 257 miles.</p><p>A decline in passenger miles means more empty seats. In 2015, Amtrak filled 51.4 percent of its seat-miles; in 2016, this fell to 50.0 percent. In other words, the average Amtrak train is half full; when was the last time you were on a half-full airliner? The biggest declines were on the Washington-Richmond state-supported train, the Seattle-Los Angeles <em>Coast Starlight</em>, and the <em>Auto Train</em>.</p><p>Some trains did show an increase in passenger miles. One of the biggest increases was the Chicago-Indianapolis <em>Hoosier State</em>, which saw an 11 percent increase in passenger miles and a 16 percent increase in revenues. <a href="https://www.hoosierstatetrain.com/" target="_blank">This train</a> is supported by Indiana, which got fed up with Amtrak service and contracted it out to another operator, Iowa Pacific. Amtrak is a “partner” because it allows people to make reservations on the train from its web site. But the lesson may be that privatization (or semi-privatization) can result in <a href="http://www.indystar.com/story/news/2016/08/02/revenue-rising-spruced-up-hoosier-state-train/87949484/" target="_blank">bigger ridership gains</a> than Amtrak.</p><p>The biggest increase in Amtrak’s revenue was state subsidies for trains such as Washington-Norfolk, Chicago-St. Louis, Seattle-Eugene, and the California trains. In 2015, these trains earned $1.62 in total revenues for every $1 in actual ticket revenues; in 2016, this grew to $1.76 per dollar. Most of the difference between total revenues and ticket revenues is state subsidies, which grew from $222.9 million to $227.5 million. </p><p>Decreasing costs, not increasing revenues, accounted for most of the increase in the share of operating costs covered by revenues. Fuel costs declined by $53 million. Wages fell by $12 million (though executive salaries grew by $17 million). The biggest savings was a $79 million decline in employee benefits, due to late F.Y. 2015 <a href="http://www.trainorders.com/discussion/read.php?4,3700610" target="_blank">cuts in both pensions and health benefits</a>.</p><p>The focus on the share of operating costs that is covered by revenues conveniently ignores the fact that not all costs are operating costs. Amtrak reported ticket revenues of $2.1 billion and total expenses of $4.2 billion, so passenger fares actually covered just 50 percent of total costs. There’s a big difference between 94 percent and 50 percent.</p><p>That difference is largely due to an issue that I’ve <a href="https://www.cato.org/pubs/pas/PA712.pdf">noted before</a>, which is that Amtrak has defined away a lot of operating costs by calling them capital costs. It’s also difficult to tell how much Amtrak is reducing costs by deferring maintenance on its infrastructure and rolling stock.</p><p>The truth is that not much is different from 2015. Amtrak still requires well over a billion dollars in federal subsidies per year. That makes Amtrak a world-class money loser, just like most European state-owned railroads. Despite the implicit promise of “declining operating losses,” that’s not going to change anytime soon unless Congress kills the program.</p></div></div><div> </div></div></div></div>Mon, 21 Nov 2016 21:23:35 +0000Chris Edwards1661 at https://www.downsizinggovernment.org